Insights & News

Five new reasons acquirers are buying

At BCMS we speak with thousands of potential acquirers each year, across multiple sectors from food to healthcare and heavy industry. Interestingly, the key strategic motives for acquisition are often similar, regardless of sector. These motives are rooted potential for growth, and include access to new geographical territories, a new customer base, key Intellectual Property, or leading-edge products or services.

2016, however, has been remarkable for several new trends affecting the global deal-making market. Here are our top five.

Digital disruption

More than 1000 technology companies changed hands in the three months to June 2016 – and 27% were acquired by non-tech buyers, according to this report.

Manufacturers are buying smart component businesses, and business consultants are adding software-as-a-service (SaaS) to broaden their offer.

Shareholder pressure

Activist investors are setting the M&A agenda – by demanding that CEOs keep acquiring growing companies and selling off low-margin divisions. Research by Harvard estimates that new overseas fund managers are building large minority stakes in a growing number of UK companies, and are now pushing CEOs of listed companies to bolster margins with high growth acquisitions.

Emerging consolidation

Consolidation has long been a key reason for much acquisition activity, but several industries are undergoing new cycles of consolidation this year. The insurance sector is adjusting its exposure to meet a new EU directive. After a few false dawns, consolidation in the gambling industry is finally underway, with Ladbroke’s buying Coral, and amalgamation among leading online players such as 888.com. Elsewhere, saturated tech segments are also consolidating for the first time, as seen in compliance software and e-learning markets.

Abandoned mega-deals

Competition regulators in the US and EU are increasingly intervening to block a wide array of mega-deal mergers. This has led to a rise in abandoned deals – such as Pfizer and Allergan in April, and M&A strategies have had to be redrawn, with a renewed focus on big players buying smaller bolt-on acquisitions.

Changing private equity

The UK private equity market has been more subdued in 2016, and appears to be shifting focus away from its traditional safe havens of technology and consumer brands, to invest in traditional businesses. This year, we have seen major PE funds investing in BCMS clients in construction, waste, manufacturing and food.

Against a backdrop of high company valuations and a challenging investment environment, PE funds are also doing more co-investment deals with other PE providers. On average, PE-backed companies in the UK grew up to 9% faster than non-PE backed firms.

Conclusion

As can be seen, a wide range of factors are at play in the M&A market at any one time. The investment climate, regulatory attitudes, divergence, convergence and boardroom dynamics are informing market appetites enough to outweigh the increased uncertainty brought about by Brexit or a Trump presidency.